William Klepper, on behalf of himself and all others similarly situated v. Ace American Insurance Company
999 N.E.2d 86
Ind. Ct. App.2013Background
- Klepper appeals a trial court order adopting a special master's six-issue report and entering partial final judgment for ACE.
- Pernod, insured by XL and ACE, faced class claims for nuisance, negligence, trespass, and illegal dumping related to ethanol emissions from Pernod's Lawrenceburg distillery.
- A settlement among the Class, Pernod, and XL, approved by the trial court in September 2009, would pay a portion of damages, with ACE potentially contributing from a common fund.
- ACE had defense costs under a reservation of rights and argued policy provisions bar coverage: legally obligated to pay and voluntary payment.
- The special master concluded ACE had defenses, including legally obligated to pay and voluntary payment, and that Pernod breached by entering the agreed judgment without ACE's consent.
- The trial court issued a partial final judgment on six issues; the Class and ACE appealed, and the majority affirmed while Crone concurred in part and dissented in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the settlement bound ACE when Pernod breached policy terms | Laikin-style reasoning supports binding insurer on liability/damages if settlement is reasonable. | ACE can rely on voluntary payment and legally obligated to pay provisions to avoid coverage. | ACE defenses preclude coverage; settlement not binding on ACE. |
| Whether ACE is entitled to final judgment on all outstanding claims | Final judgment should dispose of all claims including bad faith and setoff of settlement amounts. | Some claims (e.g., bad faith) require separate consideration; not all issues collapse with no coverage. | Partial final judgment affirmed; final judgment on bad faith premature; some claims remain unresolved. |
Key Cases Cited
- Laikin v. Midwestern Indemnity Co., 119 F.Supp.2d 831 (S.D. Ind. 2000) (insurer bound by consent judgment on liability if coverage later shown, under conditions)
- Young v. Cincinnati Ins. Co., 852 N.E.2d 8 (Ind. Ct. App. 2006) (insurer intervene; settlement may relieve insured of liability where coverage is in doubt)
- CMA v. American Family Mut. Ins. Co., 682 F.Supp.2d 879 (S.D. Ind. 2010) (insurer not bound by insured's unconstrained settlement; policy language forecloses unconstrained settlements)
- Kivela v. State, 408 N.E.2d 805 (Ind. Ct. App. 1980) (insurer cannot hide behind legally obligated to pay after abandoning insured)
- Morris v. Economy Fire & Casualty Co., 848 N.E.2d 663 (Ind. 2006) (prejudice not required when insurer enforces policy threshold conditions)
- State Farm Mut. Auto. Ins. Co. v. Glasgow, 478 N.E.2d 918 (Ind. Ct. App. 1985) (insurer may defend under reservation of rights; preserve coverage defenses)
- Frankenmuth Mut. Ins. Co. v. Williams, 690 N.E.2d 675 (Ind. 1997) (insurer may exercise defenses without abandoning insured)
- Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993) (good faith and fair dealing encompass duties beyond denial of coverage)
- Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904 N.E.2d 1267 (Ind. 2009) (insurer's threshold-notice obligations may foreclose prejudice requirements)